Author: Anni Varanda

BRAZILIAN TAX REVIEW – JULY/AUGUST 2018

Posted on by Anni Varanda

Brazil-Argentina Amendment Protocol to Double Taxation Convention

On August 28, Decree 9,482 was published in Brazil’s Federal Gazette, enacting the Brazil-Argentina Amendment Protocol to Double Taxation Convention, which is now in force in Brazil.

This Protocol introduces several modifications to the Brazil-Argentina DTC related to: (i) measures to prevent BEPS; (ii) incorporation of changes in the OECD and United Nations model conventions; and (iii) amendments that reflect the countries’ specific tax treaty policies.

Rota 2030: Brazil’s New Automotive Tax Benefit

On July 6, President Michel Temer signed a provisional measure that establishes Rota 2030, an automotive industry policy that replaces the previous one, which was known as Inovar Auto.

Rota 2030 establishes a discount on corporate income tax for automakers and auto parts suppliers, as well as the concession of ex-tariff to auto parts to reduce taxation on import transactions to zero, among other measures. These benefits will last five years.

This provisional measure is now being analyzed by the Brazilian Congress. If it is approved, the benefits will become effective on January 1, 2019.

Brazilian Government Reduces Reintegra tax benefits

On May 30, Decree 9,393 was published in Brazil’s Federal Gazette, reducing the rate for calculating Reintegra credits from 2% to 0.1%.

The Reintegra program aims to reduce the tax burden on goods exported by Brazilian manufacturers by granting PIS and Cofins tax credits. This measure therefore impacts the benefit exoneration of the export transaction.

The Decree is effective immediately, but the Brazilian Federal Constitution establishes several principles that protect individuals from government acts, such as retroactive taxes, and provides legal security. Therefore, the reduction should have become enforceable only 90 days from the date it was enacted.

Brazilian General Data Protection Law

On August 15, the Brazilian General Data Protection Law (“LGPD”) was published. It establishes a comprehensive data protection system in Brazil and imposes detailed rules for the collection, use, processing and storage of personal data, both digital and physical.

The LGPD was signed by President Michel Temer with some vetoes and will go into effect 18 months after its publication (February 2020).

Brazilian Government Attempts Again to Change the Taxation on Closed-End Funds and Private Equity Funds

In 2017, the Brazilian Government published Provisional Measure 806/2017, introducing significant changes to the tax treatment of Closed-End Funds (“Fundos de Investimento Fechados”) and Private Equity Funds (“FIP”). The main change was automatic investor withholding income taxation on a semi-annual basis, regardless the redemption or amortization of their fund shares.

However, the Brazilian Congress did not convert the Provisional Measure into law before the regulatory deadline. Therefore, in July 2018 the Senate presented Bill 338/2018, attempting again to implement the same changes to the tax treatment of those funds. The Bill is pending approval from the Brazilian Congress and subsequent Presidential ratification.

Brazilian Government Prohibits Taxpayers from Offsetting Any Tax Credit Against Corporate Income Tax Advance Payments

Law 13,670/2018, amongst other important provisions, forbids the offset of any tax credit against the IRPJ and CSLL tax monthly advanced payments, calculated by the annual actual profit method.

Considering the serious impact this will certainly have on a great many taxpayers, and given its clear violation of constitutional and other legal provisions, this new rule has been challenged in court, with favorable orders being granted so far. There have also been proposals for its revocation by some members of the Brazilian Congress.

Partial Restoration of Payroll Tax Affects Brazilian Companies

Since 2011, 56 industries have had the option of replacing the 20% payroll tax by a 1% to 4.5% tax on gross revenues (“CPRB”).

In the context of the economic crisis and aiming to increase its tax revenue, the Government restored the payroll tax for 39 of those industries (Law 13,670), generating widespread opposition from the affected companies and large-scale lawsuits regarding this matter.

Commissions Paid by Brazilian Exporters to Their Foreign Agents are not Subject to PIS/COFINS-Import tax

The Federal Revenue Office recently issued Private Letter Ruling 76/2018, stating that the commissions paid by Brazilian exporters to their foreign agents are not subject to PIS/COFINS-Import tax.

This is a change to the Federal Revenue Office’s interpretation. Previously, tax authorities had issued private letter rulings stating that services provided by foreign agents generate results in Brazil, triggering the PIS/COFINS-Import tax. Under the new interpretation, the result of the service (export of the goods) is deemed to be accomplished abroad, so the PIS/COFINS-Import tax is not due.

Taxpayers are Entitled to Refund of PIS/COFINS-Import Tax Non-Cumulative Credits Related to Exports

As provided under Brazilian law, taxpayers are entitled to maintain the PIS/COFINS tax non-cumulative credits related to exports (which are exempt from these taxes) and request a refund, which can be converted into an offset against any other federal tax debts.

Despite this, the Federal Revenue Office claims that this right applies only to credits derived from purchases on the domestic market and, therefore, has denied the refunds (and offsets) of PIS/COFINS-Import tax credits linked to subsequent exports.

This controversy may have reached a conclusion in the context of Private Letter Ruling 70/2018. This ruling recognizes the taxpayers’ eligibility for a refund (and offset against other federal taxes) of the PIS/COFINS-Import tax non-cumulative credits linked to exports.

Prohibition on the offset of Corporate Income Tax Anticipation Debts

Posted on by Anni Varanda

On May 30th 2018, the Brazilian Congress enacted Law 13,670/2018, aiming to compensate the tax relief granted by the federal government on the diesel oil, as an outcome of the recent negotiations with truck drivers, who recently came out on an unprecedented strike.

The new legislation, amongst other important provisions as the recharging on the payroll, established the prohibition on the offset of possible tax credits against the IRPJ and CSLL monthly anticipation debts, calculated via the annual actual profit regime.

Taking into consideration the serious impacts that will certainly affect a great deal of taxpayers, and given its clear collision with constitutional and other legal provisions, this new rule has been questioned before judicial courts, with favourable writs being granted so far, besides proposals of its revocation by some members of the National Congress.

BRAZILIAN TAX REVIEW – JUNE 2018

Posted on by Anni Varanda

Brazil Signs New DTCs with Switzerland and Singapore, Seeking a Larger Tax Treaty Network

Brazil recently signed Double Treaty Conventions (DTCs) with Switzerland and Singapore. These DTCs contain several rules aligned with the BEPS Project (Base Erosion and Profit Shifting), such as general anti-avoidance rules and exchange of information among the contracting states’ tax authorities.

These DTCs still need to be ratified by the Brazilian Congress and implemented through a presidential decree before they become effective.

Brazil Expands its Customs Mutual Assistance Agreements (“CMAA”)

In 2010 the Brazilian Government signed a CMAA with Turkey, which was approved by the Congress in 2017 and now has become effective by means of a presidential decree published in April 2018.

Additionally, the Brazilian Congress approved another CMAA in May 2018, which was signed with China in 2012. This agreement still needs to be implemented through a presidential decree to become effective.

These bilateral agreements aim to provide each contracting state with administrative assistance for the proper application of customs law, for the prevention, investigation and combating of customs offences and to ensure the security of the international trade supply chain.

Important Decision on the Tax Deductibility of Royalties for the Commercialization and Distribution of Software Paid to Related Parties Abroad

The Administrative Tax Appeals Board (Conselho Administrativo de Recursos Fiscais), or CARF, has taken up an appeal filed by a Brazilian software provider that pays royalties to a related party abroad for the commercialization and distribution of software.

The taxpayer was issued an infraction notice by Brazilian Federal Revenue for having deducted all the royalty expenses from the income tax calculation bases (IRPJ and CSLL). The tax authorities claimed that tax legislation forbids this deduction if the payment is made to a non-resident owner.

The taxpayer argued that the licenser, even though it belongs to the same economic group, could not be characterized as an owner since it does not directly own its share capital. The CARF therefore held that all the royalty expenses could be deducted from the IRPJ and CSLL calculation bases.

Rules to Change Investment Fund Taxation are Not Implemented

In 2017 the Brazilian government published Provisional Measure 806/2017, introducing significant changes to the tax treatment of Closed-End Funds (“Fundos de Investimento Fechados”) and Private Equity Funds (“FIP”).

However, Provisional Measure 806/2017 became ineffective since the Brazilian Congress did not convert it into law before the regulatory deadline. The tax treatment of these investment funds therefore remains unchanged.

Brazil Approves WTO Protocol on Trade Facilitation

Brazil recently approved the first Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization (WTO), by means of Decree 9,326 on April 3, 2018

This protocol is meant to insert the Trade Facilitation Agreement (TFA) into Annex 1A of the Marrakesh Agreement Establishing the WTO. In turn, the TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit.

The TFA also sets out measures for effective cooperation between customs and other appropriate authorities and trade facilitation and customs compliance issues. Furthermore, it contains provisions for technical assistance and capacity building in this area. The TFA came into force on February 22, 2017, when two-thirds of the 164 WTO members accepted it.

The TFA was the first agreement concluded at the WTO by all of its members. Brazil has been a WTO member since its creation in 1995. As for the incorporation of WTO agreements into Brazilian legal system, the Brazilian Congress must approve it and a presidential decree officially incorporates WTO agreements into Brazilian domestic legal system.

The State of São Paulo Launches a Groundbreaking New Tax Compliance Program

On April 7, 2018, the State of São Paulo launched a tax compliance program (Law 1,320) that is called “In Compliance” (“Nos Conformes”). The program is intended to foster a collaborative environment between tax authorities and taxpayers.

Under the new measures, taxpayers can be classified into categories – A+, A, B, C and D – according to certain factors: (i) outstanding ICMS tax liabilities; (ii) tax declarations, tax books and invoices issued; (iii) profile of taxpayer’s suppliers.

Highly ranked taxpayers will have access to benefits such as: (i) better conditions for using and transferring accumulated tax credits; (ii) simplified renewal for special tax regimes; (iii) special conditions for the payment of the ICMS tax under the tax substitution regime, and (iv) use of ICMS tax credits to pay the ICMS tax due on imports (customs clearance), among others.

Implementing regulations for the program must be issued for it to become fully applicable.

Federal Tax Tribunal (CARF) Allows Tax Offsets before Final Judicial Decision

Recently the Administrative Tax Appels Board (Conselho Administrativo de Recursos Fiscais), or CARF, granted a taxpayer the right to offset tax debts against tax credits that are still under judicial review. The allowance was based on the fact that the matter challenged by the taxpayer had already received a favorable decision from Brazilian Supreme Court in a binding legal precedent.

Based on a systematic interpretation of section 170-A of the Brazilian Tax Code – which prevents taxpayers from offsetting taxes before a final judicial decision is entered – the CARF held that the taxpayer could offset PIS/Cofins tax debts as a result of the decision on Extraordinary Appeal RE 357.950/RS, with no need for a proper decision in its favor.

Federal Tax Tribunal (CARF) Rules Stock Options Taxable

On March 21, 2018, the Superior Chamber of the Administrative Tax Appels Board (Conselho Administrativo de Recursos Fiscais), or CARF, ruled against a leading Brazilian bank, upholding a 20% Social Security Tax assessment. The decision reverses a 2015 decision from a lower chamber of the CARF.

The CARF has decided that the stock options granted under the company’s plans should be treated as compensation income rather than investment income, based on the specific characteristics of each plan. As compensation income, social security tax is due on it.

In two previous cases, the Superior Chamber of the CARF upheld lower court decisions in favor of employers.

Federal Tax Tribunal (CARF) Analyses PIS/COFINS Credits in Line with New Superior Court of Justice´s Position

For the first time, the Superior Chamber of the Administrative Tax Appels Board (Conselho Administrativo de Recursos Fiscais), or CARF, has considered the new concept of input adopted by the Superior Court of Justice (STJ) in Special Appeal #1.221.170 in a case providing Social Integration Program Tax (Programa de Integração Social), or PIS, and Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, credits for purchasing a copyright.

STJ decision solidified the position that using these credits must comply with the criteria of the essentiality or relevance of the expense for the taxpayer´s activities.

Superior Court of Justice Considers Investment Abroad not Subject to IRPJ and CSLL

The Superior Court of Justice has issued a decision on Special Appeal #1.649.184 that reinforces the Court´s precedent that the Brazilian Corporate Income Tax (IRPJ and CSLL) is not due on the positive result of investment in a subsidiary abroad.

The Decision holds that article 7(1) of SRF Instruction 213/2002 expanded the tax base of taxes, with no legal basis, by considering the positive return of equity in earnings booked in the accounting of the Brazilian company, regarding the investments in the subsidiary abroad.

BRAZILIAN TAX REVIEW – MARCH/APRIL 2018

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Superior Court of Justice Establishes Criteria for Approval of PIS/COFINS Credits on Inputs

The Superior Court of Justice has taken up the decision of Special Appeal #1.221.170/PR, which deals with the definition of inputs for the purposes of Social Integration Program Tax (Programa de Integração Social), or PIS, and Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, credits.

In the decision, which was submitted to the system for repetitive binding appeals, the court solidified the position that using the credits must observe the criteria of the essentiality or relevance of the expense for the taxpayer’s activities.

The Superior Court of Justice also approved the following thesis that summarizes the issue: “The definition of input must be determined in light of the criteria of the essentiality or relevance, taking into account the importance of a given item, good or service for the conduct of the taxpayer’s economic activity.”

Although the appellate decision has not yet been formalized and will need to be analyzed to determine the real scope of the decision, it is nonetheless true that the Superior Court of Justice’s position is favorable to taxpayers and could open a path to recovering amounts overpaid in the past and to reducing PIS/COFINS amounts paid monthly by companies.

PGFN Issues Regulations for Freezing Assets without a Court Order

Attorney General’s Office for the National Treasury (Procuradoria-Geral da Fazenda Nacional), or PGFN, Ordinance 33/2018 regulates the procedures for freezing debtors’ assets without seeking a court order, under Law 13,606/18. With this ordinance, the treasury can record the debt in real and chattel property registries immediately after it has been listed as a past-due debt, even before a tax execution action has been filed.

The constitutionality of this measure has already been challenged before the Federal Supreme Court, under the argument that the so-called “pre-execution recording” violates the principles of due process, adversary proceedings, a broad defense and separation of powers, among others.

OECD/G20 and the European Commission Publish Reports about the Tax Challenges of the Digital Economy

On March 16, 2018, the OECD published an intermediary report about the tax challenges arising under the digital economy, as a continuation to the studies published in BEPS Action 1.

The report discusses how digitalization affects all the areas of tax systems, to provide new service tools to the tax authorities and to taxpayers and to increase the efficiency of identifying tax evasion and of collecting taxes.

A few days later, on March 21, 2018, the European commission proposed new rules to ensure that digital business activities are taxed fairly and in a way that favors growth in the European Union. The suggested measures include a joint reform of the European rules for the taxation of corporate entities in so-called digital economy activities, such as the creation of a definition of a virtual permanent establishment and rules for the allocation of profit among the member states, as well as a provisional tax on certain revenue from digital activities. These suggestions will be submitted for deliberation.

PGFN Regulates Transfer of Real Property in Payment of Tax Debts

The Attorney General’s Office for the National Treasury (Procuradoria-Geral da Fazenda Nacional), or PGFN, has published PGFN Ordinance 32/2018, which states the conditions and requirements for indebted taxpayers to transfer real property as payment. The ordinance covers nontax and tax debts listed as past-due, whether or not subject to a court decision, except those that originated under the “National Simple” system.

Among the provisions that should be noted is the requirement that the taxpayer release a claim to any overpayment if the appraisal price of the real property is greater than the debt to be extinguished, and the requirement that, if there has been a deposit into court, the real property can be used only for the balance not covered by the deposit.

Seeking Greater Exchange of Information, Brazil Approves Protocols in Treaties to Avoid Double Taxation with India, South Korea and South Africa

The presidential decree implementing the protocol that amends the Convention to Avoid Double Taxation between Brazil and India has been published. Additionally, the Brazilian Senate has ratified similar protocols in the conventions with South Korea and South Africa (a presidential decree is still needed to bring these latter two protocols into effect).

In all three cases, the protocols are intended to update and expand the reach of the article concerning the exchange of information among the tax authorities of Brazil and the other countries, allowing the signatories greater access to information that is material to collecting taxes in their countries.

Brazil Expands its Social Security Agreement Network

Brazil has signed a social security agreement with Israel, which still needs to be ratified by the Brazilian Senate and implemented through a presidential decree before it becomes effective. Additionally, the Brazilian Senate has ratified a Social Security Agreement between Brazil and Luxembourg, which is still awaiting a presidential decree.

These agreements give each country’s workers who are resident in the territory of the other country the opportunity to take advantage of the contribution periods in the two countries to obtain the social security benefit.

Brazil Potentially Joining the OECD Entails an Important Work Program to Study Local Transfer Pricing Rules

The OECD and the Brazilian government have launched the project “Transfer Pricing in Brazil,” with the following objectives over the course of three phases: (i) to analyze the legal and administrative framework in effect in Brazil; (ii) to evaluate its strengths and weaknesses; and (iii) to explore options for closer alignment between Brazil and OECD member countries.

This work program was created in the context of Brazil potentially joining the OECD. Since there are important differences between the transfer pricing rules used in Brazil and OECD guidelines, the OECD has chosen to create this program to better understand the differences and avoid double taxation and practices that hide profit.

CARF Decides that Revenue from Travel Agencies Is Restricted to Commissions

The Administrative Tax Appeals Board (Conselho Administrativo de Recursos Fiscais), or CARF, has taken up an appeal filed by a travel agency in which the composition of the company’s revenue is at issue.

The taxpayer was issued an infraction notice by Brazilian Federal Revenue for not having included all of the amounts received by the agency in the sale of tourist packages, which include the amounts passed on to hotels, airlines, tourism operators, etc., in its taxable operating revenue. In its challenge, the taxpayer argued that those amounts were not its own revenue but that of third parties, with its own operating result consisting exclusively of the commissions received for this intermediation service.

On the merits of the case, the CARF board granted the taxpayer’s appeal, recognizing that, in fact, the travel agency should recognize revenue only in relation to the commissions on the sales. Brazilian Federal Revenue’s position on this matter was therefore rejected.

Voluntary Admission Does Not Apply to Special Customs Methods

The Superior Chamber of the Administrative Tax Appeals Board (Conselho Administrativo de Recursos Fiscais), or CARF, has analyzed a case in which the taxpayer was issued an infraction notice with a fine for failing to comply with the deadline for exporting a good under a temporary admission customs method. In the appeal, the taxpayer claimed that the penalty should be lifted because it made a voluntary admission of its failure.

However, the CARF maintained the infraction notice on the argument that the institute of voluntary admission eliminates requirements related only to the principal obligation and does not impede the application of customs fines.

BRAZILIAN TAX REVIEW – JANUARY/FEBRUARY 2018

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States Make Progress in Resolving the ICMS “Tax war”

Following the rules in Supplementary Law 160/2017, the states have approved an agreement (ICMS Convention 190/2017) that establishes rules for validating tax incentives granted improperly, as well as authorizing the granting of amnesty and the forgiveness of past debts.

This convention sets a deadline for the states to disclose all the tax incentives they have granted in recent years without certification by the National Council for Fiscal Policy (Conselho Nacional de Política Fazendária), or CONFAZ, as well as to register them with that body, in order to disclose them to all taxpayers.

Once this has been done, the tax incentives will have an effective term according to the nature of the activity with which they are connected (industry, commerce, etc.).

Because the convention has been approved, it is essential that taxpayers who use tax incentives that have not been properly approved verify whether their incentives have been listed among those disclosed to and recorded with CONFAZ. Taxpayers should also determine whether they can adhere to a tax benefit that reduces their ICMS tax burden, particularly if direct competitors are taking advantage of such a tax break.

Attorney General’s Office for the National Treasury Can Freeze Taxpayers’ Assets without a Court Order

Law 13,606/2018, which was passed recently, authorizes the Brazilian Treasury to record past-due debt certificates at agencies that record assets and rights subject to attachment or lien (for example, real estate and automobile registry offices), making these assets unavailable, before a tax execution action is filed.

In practice, the law authorizes the Attorney General’s Office for the National Treasury to make the assets of debtors unavailable when those debtors have been notified that they have been placed on the list of people with past-due federal tax debts (or in other words, before the tax execution action) and have not paid the debt within five days of receiving the notice. Moreover, the law authorizes the Brazilian Treasury to notify credit bureaus regarding debts placed on the past-due federal tax list.

This controversial measure could be challenged in court because it appears to conflict with provisions of the Brazilian Constitution and National Tax Code.

The State of São Paulo Regulates the ICMS Tax on Digital Goods

In keeping with Tax on the Circulation of Merchandise and Services Convention 106/2017, the state of São Paulo has published in-state regulations governing the collection of the Tax on the Circulation of Merchandise and Services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, on what are referred to as digital goods. These include standardized software, computer programs, digital games, apps, electronic files, etc.

Under the new rules, the platform that digitally transfers these goods, even if this is done by means of periodic payments, must pay the tax to the state in which the recipient of the goods is located.

These provisions provide even more fodder for discussions concerning the “tax war” among the states and municipalities. This is because a large part of the services covered by the decree are considered services subject to taxation by municipalities under the Service Tax (Imposto sobre Serviços), or ISS.

The decree goes into effect on April 1, 2018, with the collection of taxes on these transactions being expected from that date.

Notwithstanding the fact that this tax is to take effect very soon, there are lawsuits before the Brazilian Supreme Court seeking to suspend or even cancel the ICMS tax levy on digital goods. These lawsuits are based not only on conflicts with the ISS tax legislation, but also on the fact that there is no law to implement the tax and on arguments that the ICMS tax should not be levied on intangible goods.

Important Changes to the List of Jurisdictions with Favorable Taxation and Privileged Tax Systems

Normative Instruction RFB 1,773/2017 excludes Singapore, Costa Rica and Madeira from the list of countries or dependencies with favorable taxation (the blacklist).

On the other hand, the normative instruction includes certain tax systems from these countries on the list of privileged systems (the gray list). These are: the Free Trade Zone System of Costa Rica, the Madeira International Business Center, established under Portuguese law, and various systems that exist under the law of Singapore.

Brazilian Federal Revenue Issues a Regulation on the Tax Effects of Financial Reporting Standards on Accounting for Revenue from Contracts with Customers (IFRS 15)

Normative Instruction RFB 1,771 governs the tax rules regarding accounting entries under Accounting Standards Committee Pronouncement 47 (IFRS 15) on revenue from contracts with customers, which was issued in November 2016 and becomes effective in January 2018.

This normative instruction approves the model statements to be used by taxpayers in controlling the differences between the corporate criteria and the criteria in effect for tax purposes regarding revenue, costs and expenses, and the respective adjustments under the laws governing this matter.

Brazilian Supreme Court Suspends New Rules for the ICMS-ST Tax

The Chief Justice of the Brazilian Supreme Court issued a preliminary injunction suspending certain provisions of Tax on the Circulation of Merchandise and Services Convention 52/2017, which sought to make the rules relative to the tax substitution method for the Tax on the Circulation of Merchandise and Services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, uniform.

The suspended provisions include the controversial rule requiring the inclusion of the tax in its own calculation basis. In practical terms, this increased the amount of tax paid in certain situations. The main reason given by the Chief Justice of the Brazilian Supreme Court was the need to issue a supplementary law to deal with the matters included in the convention.

The decision will be reevaluated by the reporting justice chosen for the hearing of the challenge to the convention’s constitutionality when the Supreme Court returns from recess.

Important Changes in ISS Law in the Municipality of São Paulo

São Paulo Municipal Law 16,757/2017 made important changes in that municipality’s Service Tax (Imposto sobre Serviços), or ISS, law by adopting the changes made by Federal Supplementary Law 157/2016 at the municipal level.

Among other matters dealt with, the list of services subject to the ISS tax has been updated to include making content available through streaming (item 1.09) and publishing advertising on the Internet (item 17.24).

Under São Paulo municipal law, all information technology services will be taxed at a 2.9% rate, as will the services under item 17.24.

Moreover, the new law changes the place of payment of the ISS tax for certain, specific activities. These include health insurance plans, credit and debit card administration and commercial leasing, among others, in keeping with Federal Supplementary Law 157/2016. Certain rules regarding the “tax war” among municipalities have also been included.

Brazilian Federal Revenue Ratifies Its Position on the Taxation of Licensing for the Commercialization and Distribution of Foreign Software in Brazil

Through Interpretive Declaratory Act RFB 07/2017, Brazilian Federal Revenue has ratified and formalized its position that payments sent abroad as consideration for licensing for the commercialization or distribution of software are royalties. This means they are subject to the withholding tax at a rate of 15%.

The new rule also clarifies that, if the beneficiary of the payment is resident or domiciled in a country with favorable tax treatment, the withholding tax rate for the transaction will be 25%.

Brazilian Federal Revenue Simplifies the Rules for Offsetting Income Tax Paid Abroad against the Brazilian Corporate Income Tax (IRPJ)

Normative Instruction RFB 1,772/2017, which was issued recently, makes changes to the procedures for offsetting income tax paid abroad on profit, income and capital gains received by corporate entities domiciled in Brazil.

Under this normative instruction, corporate entities established in countries that are parties to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents are released from the obligation of having the documents that prove payment recognized by the respective agency collecting the payment and by the Brazilian consulate. All that will be necessary now in these cases is an apostille on the payment document and a sworn translation.

Authentication and recognition of the documents continue to be necessary for countries that are not party to the Hague Convention.

BRAZILIAN TAX REVIEW – DECEMBER 2017

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States vs. Municipalities: ICMS Agreement 106/2017 Enhances the Conflict over Digital Goods Taxation (including Streaming and Software)

There is an ongoing and significant conflict in Brazil between states and municipalities to decide who has the power to tax transactions involving digital goods, including streaming services and software, especially after the recent approval of ICMS Agreement 106/2017 by the states.

Regarding software, the dispute involves a historical position of the Brazilian Constitutional Court (STF) that standard software (“off-the shelf”) distributed through retail stores is a good and, for this reason, should be subject to the Tax on the Circulation of Merchandise and Services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, which is a state tax, whenever distributed in a physical medium (CD-ROMs etc.).

However, subsequently to the consolidation of the precedent, the Brazilian Congress passed Supplementary Law 106/2003, which lists software licensing as a service subject to the Service Tax (Imposto sobre Serviços), or ISS, which is a municipal tax. More recently, in 2010, and in a preliminary injunction, the STF allowed the ICMS to be collected even when the software is purchased through download, with no physical medium (even thought this case has not been finally decided yet).

As a result, even though in theory the ICMS and ISS taxes cannot be levied on the same transaction, based on the precedents, states are now charging ICMS on downloaded software under the argument that, despite its intangibility, it still could be deemed a good. The same rational applies to other digital goods.

With respect to streaming, similarly to software, the Brazilian Congress has recently passed Supplementary Law 157/2016, which lists streaming as a service for ISS purposes. Yet again, the states are ignoring this and considering this service to be subject to the ICMS.

Litigation will possibly be needed to resolve this dispute since it is likely both states and municipalities will continue levying the ICMS and ISS taxes on the same taxable events.

New Rules to Change Investment Fund Taxation in Brazil

On October 30, 2017, the Brazilian government published Provisional Measure 806/2017, which makes significant changes to the tax treatment of certain types of Brazilian investment funds, as described below.

Closed-End Funds (“Fundos de Investimento Fechados”) – From May 2018, investors will be subject to automatic withholding income taxation on a semi-annual basis (every May and November). Currently, investors must pay income tax only on the redemption or amortization of their fund shares.

Private Equity Funds (“FIP”) – From January of 2018, FIPs will be classified either as “investment entities” or as “non-investment entities,” with the following tax consequences:

(i) “investment entities” – income earned as a result of the disposal of any of their investments will be automatically subject to the withholding income tax (if the gains exceed the paid-in capital of the FIP), regardless of distribution to the investors, i.e., the tax deferral will no longer be applicable; and

(ii) “non-investment entities” – will be subject to the same taxation applicable to Brazilian corporations. The income and capital gains that have not been distributed to the shareholders will be deemed distributed on January 2, 2018, for withholding income tax purposes.

The tax treatment of Real Estate Investment Funds (“FII”), Distressed Asset Funds (“FIDC”) and Equity Investment Funds (“FIA”) remains unchanged.

Brazil-Russia DTC Finally Comes into Force

The Double Taxation Convention signed with Russia was finally enacted by Presidential Decree 9,115/2017, becoming effective in Brazil on August 1, 2017. Even though the convention was signed back in 2004, it was only analyzed by the Brazilian Senate and sent for the Presidential approval in 2017.


CARF Holds that CIDE-Royalties Are Not Levied on Withholding Income Tax (IRRF) and Should Not Be Collected Before the Actual Remittance

In a recent decision, the CARF held that the Contribution on the Importation of Technology and Technical Services (CIDE-Royalties) levied on the remittances of royalties to non-residents, under the scope of a franchising agreement, must be collected upon the remuneration outflow to the beneficiary abroad. Thus, tax authorities cannot charge the contribution based solely on the liability accrued in the taxpayer’s financial statements, if the remuneration has not yet been effectively paid.

Additionally, the calculation basis is the non-resident’s remuneration, as set forth in the agreement. Therefore, the CIDE-Royalties’ calculation basis must not include an occasional grossed-up withholding income tax.

Superior Court of Justice Considers Presumed ICMS Credits as Investments Subsidies for Federal Taxes Purposes

An important decision has recently been issued by the Superior Court of Justice (STJ), stating that presumed ICMS credits should be treated as an investment subsidy, which means they are not considered revenue for PIS, COFINS, Social Contribution on Net Profits (CSLL) and Income Tax (IRPJ) purposes. This decision is contrary to the Federal Revenue Office’s position on this matter, which maintains they are subject to federal taxes.

In the same regard, the Brazilian Congress has overridden the presidential veto on this matter that was in the original text of the Supplementary Law 160/2017, which makes these amounts not subject to federal taxes in the future.

CARF Analyses IOF Taxation on Cash Pooling Arrangements

According to Law 9,779/99, the Financial Transaction Tax (Imposto sobre Operações Financeiras), or IOF, must be paid on loan agreements, including transactions conducted outside the financial system (i.e., entered into between non-financial private companies). However, it is not clear in the legislation if the cash pooling performed among related parties characterizes loan agreements or not.

After analyzing a similar case, the Federal Tax Tribunal (CARF) held that cash pooling arrangements results in disposal of cash among the parties, which meets the definition of a loan agreement for IOF purposes. Therefore, the CARF decided that such arrangements must be taxed by IOF.

Brazilian IRS Requires Taxpayers to Register Remittances Abroad Related to Software Licensing as Royalties

The Brazilian IRS disclosed its position with respect to the obligation of taxpayers to register remittances for software licensing as royalties. This position was stated in Ruling 499/2017, issued in response to a request for a private letter ruling filed by an agent who has a distribution agreement with a license owner and was remitting payments for the rights to distribute a program in Brazil.

The IRS has deemed commercial rights as royalties for all purposes, which may affect its tax treatment in Brazil and forces taxpayers to collect the Withholding Tax (IRRF) and CIDE.

In addition, failure register the remittances on the SISCOSERV system would be subject to a fine on the amount remitted.

Interest Paid by Customers to Retailers Should Not be Considered Financial Revenue

The Superior Court of Justice (STJ) has ruled that the interest that customers pay to retail stores due to the acquisition of goods in installments cannot be deemed financial revenues and, thus, should be subject to regular Social Integration Program Tax (Programa de Integração Social), or PIS, and Social Security Financing Tax (Contribuição para o Financiamento da Seguridade Social), or COFINS, taxation at a 9.25% rate.

Financial earnings were not subject to PIS and COFINS until July 2015, when a Decree imposed a 4.65% rate. In view of that, according to the STJ’s position, these earnings should now be fully subject to PIS and COFINS taxation at the regular 9.25% rate instead of the 4.65% applicable to financial revenue.

It is still possible to appeal to the Brazilian Constitutional Court (STF).

CARF Holds that Refund of Tax Credits obtained in judicial decisions Is Subject to Income Tax at Different Times

The Brazilian Federal Tax Tribunal (CARF) has analyzed the income tax incident on tax refunds gained through a judicial decision. In the specific case, the final judicial decision did not assess the amount to be refund but authorized the offset of the credits by the taxpayer before the end of the award calculation phase.

The Decision holds that tax refunds derived from judicial decisions must be included in taxable profit, for income tax purposes, on an accrual basis. In general, the revenue must be accrued within the final judicial decision, as long as the amount to be granted to the taxpayer is irrefutable, liquid and collectable.

However, if the judicial decision might be subject to enforcement or any incidental proceeding, the revenue must be accrued: (i) at the end of the enforcement/incidental proceeding; or (ii) insofar as the credits are offset by the taxpayer, if the judicial decision allows this previous compensation.

BRAZILIAN TAX REVIEW – OCTOBER 2017

Posted on by Anni Varanda

ICMS Tax War May be Coming to an End

The Brazilian Congress has passed Supplementary Law 160/17, the main goal of which is to end the so-called “ICMS Tax War” among the Brazilian states. This tax war consists of states granting ICMS tax breaks without following constitutional procedures, leading states to disregard each other’s tax breaks when they levy taxes.

The Supplementary Law authorizes states to validate all the unconstitutional tax breaks and cancel the assessments involving the issue. However, the law itself does not established any automatically effective provisions because all of its terms depend on the states approving an agreement listing its specific terms, including the disclosure of all the unconstitutional tax breaks they have granted in the past.

The states must approve the agreement by February 2018, otherwise Supplementary Law 160/17 will become ineffective.

Tax Reform Under Discussion

Once again, the Brazilian Government is discussing a broad tax reform. The reform bill proposes combining all indirect taxes into a single VAT that would be divided into two types according to the kind of goods taxed – one general and the other applicable to specific products, such as energy, fuel, communications, cigarettes, spirits, vehicles, tires and auto parts. There is also a provision to combine the Social Contribution on Net Profits and the Corporate Income Tax into a single Income Tax.

The government’s proposal is not intended to reduce the Brazilian tax burden, but solely to bring some rationality to it by simplifying tax routines, calculation and ancillary obligations.

Reintegra Benefit Reduced to 2% in 2018

REINTEGRA is a program that aims to refund the residual costs of taxes paid throughout the exportation chain to taxpayers, in order to make them more competitive on international markets.

Originally, the refund rate was to be 2% in 2017 and 3% in 2018. However, the Brazilian Government has decided to maintain the REINTEGRA rate at 2% in 2018, which will directly impact Brazilian exporters.

Brazil and Japan Sign a Mutual Cooperation Agreement

Brazilian and Japanese authorities have entered into an agreement aiming at increasing their cooperation regarding trading and customs regulations, as well as preventing fraud and violations of regulations in these fields. The terms of the agreement will benefit companies that are already part of the Authorized Economic Operator (“AEO”) program, the main objective of which is to reduce customs barriers by certifying traders that have historically been in compliance with local and international rules on this matter.

The legislative authorities of both countries still need to confirm the agreement so that it can become fully effective.

Brazilian Government to Charge The Revoked Additional 1% of Cofins on Imports

Even though revoked by a Provisional Measure (PM) enacted by the President, the 1% additional COFINS rate on Imports is deemed in effect by the Brazilian Internal Revenue Service, due to the fact that the National Congress rejected the PM that revoked the tax.

Based on that, the Brazilian IRS has stated that the additional 1% rate has become valid again and that taxpayers must pay it on customs clearance. This position, however, is being criticized by taxpayers who argue that a new law is necessary to reestablish the additional 1% rate.

Federal Revenue Office Regulates the Tax Aspects of Investments in Start-Ups By Angel Investors

Normative Ruling 1,719/2017, issued by the Brazilian Federal Revenue Office, states that angel investments in start-ups will be similar to financial investments for tax purposes.

Therefore, the profits distributed by the start-ups, as well as the gain derived from the investment refund or from the sale of the rights of conversion into capital, must be considered financial income and are subject to Withholding Income Tax (“WHT”).

The tax rate is determined by a specific tax table, according to the elapsed time between the investment’s pay-in and the income payment, as follows: (i) 22.50% for income earned before 180 days; (ii) 20.00% for income earned after 181 days and before 360 days; (iii) 17.50% for income earned after 361 days and before 720 days; and (iv) 15.00% for income earned after 720 days.

Superior Court of Justice Holds That Cide-Royalties Applied to Software Imports With no Transfer of Technology From 2000 to 2006

The Superior Court of Justice has held that the import of software licenses and the right to commercialize and distribute software were subject to CIDE-Royalties from 2000 to 2006, even if there was no transfer of technology.

Law 10,168/2000 created this tax in 2000, establishing the payment of royalties to non-residents as the triggering event. A few years later, Law 11,452/2007 stated that CIDE-Royalties does not apply to the import of software with no transfer of technology (i.e., when the source code is not provided to the beneficiary).

The discussion that took place is whether Law 11,452/2007 was interpretative in nature and, therefore, should be retroactive, or whether it established a tax exemption and, thus, applied only to the future transactions.

The Superior Court of Justice held that Law 11,452/2007 established a tax exemption and, therefore, CIDE-Royalties must apply to software imports with no transfer of technology for the periods before its enactment.

Reimbursement of Expatriates’ Wages From Brazilian Companies to Their Head Offices Abroad are Not Subject to Taxation

The Federal Revenue Office has issued Private Letter Rulings 378/2017 and 440/2017, stating that the amounts paid by a Brazilian company to its head office located abroad, as a reimbursement for the wages of the expatriate employees working in Brazil, is not subject to taxation.

Since the wages received abroad by the expatriates are subject to the individual income tax on a universal basis in Brazil, the reimbursements from the Brazilian company to its head office should not be subject to any taxation, in order to avoid a double taxation.

New Amendments in the Double Taxation Convention Between Brazil and Argentina

Brazil and Argentina have signed an amending protocol to their double taxation convention, which introduced several modifications related to: (i) measures to prevent BEPS; (ii) incorporation of changes in the OECD and United Nations model conventions; and (iii) amendments that reflect the countries’ specific tax treaty policies.

BRAZILIAN TAX REVIEW – JULY 2017

Posted on by Anni Varanda

Brazilian Federal Revenue Office Reviews its Transfer Pricing Guidelines on International Cost-Sharing Agreements

The Federal Revenue Office has issued Private Letter Ruling 99,069/2017, which states, among other things, that transfer pricing rules apply to international cost-sharing agreements related to non-core activities. However, the ruling does not mention which arm’s length method applies to this type of transaction.

The new ruling represents a change in the tax authorities’ position on this matter. Previously, Private Letter Ruling 8/2012 stated that cost-sharing agreements were not subject to transfer pricing rules as long as the involved companies: (i) set forth reasonable and clear criteria for allocation of the expenses; and (ii) the amounts reimbursed did not include a profit margin.

New Interpretation on the Taxation of Remittances Abroad: Marketing and Distribution Rights Related to Software

The Federal Revenue Office has issued Private Letter Rulings 18/2017, 342/2017 and 7,014/2017, stating that the acquisition of marketing and distribution rights for software generates the payment of royalties to the extent that it involves the resale of software licenses.

Therefore, the payments for such rights from a Brazilian resident to a non-resident must be subject to a 15% withholding income tax. Moreover, if the transaction entails the transfer of technology (i.e., the source code is given to the final customer), the CIDE-Royalties tax is also levied at a 10% rate.

Brazilian Court Analyzes the Classification of Services in the DTC between Brazil and Belgium

The Federal Court for the 3rd Region has recently issued a decision favorable to a taxpayer on the classification of services in the Convention for Avoidance of Double Taxation (“DTC”) entered into between Brazil and Belgium.

The classification of services in DTCs has always been a controversial matter in Brazil since the local tax authorities refuse to adopt the OECD guidelines and impose the source state taxation.

In this case, a Belgium-based entity provided technical services to a Brazilian resident and the Brazilian tax authorities classified the services as royalties (Article 12), based on item 6 of the DTC’s protocol, in order to apply the Brazilian withholding income tax on the remittances.

However, the Federal Court held that only services strictly connected to the transfer of technology should be classified as royalties. Therefore, in line with OECD guidelines, the technical service provided by the Belgian entity was re-classified as business profits (Article 7), which are exempt from the Brazilian withholding income tax. This decision is not final and might be subject to appeal before the Superior Courts.

Federal Administrative Tax Tribunal (CARF) Issued Important Decision on the PIS and COFINS Taxation of Loyalty Programs

The Federal Administrative Tax Tribunal (CARF) has issued a favorable decision to the taxpayer regarding the application of the Social Contributions on Revenues (PIS and COFINS) to a loyalty program service provider.

Even though the tax aspects of these programs have never been properly regulated in Brazil, the tax authorities maintain that the loyalty program provider must collect PIS and COFINS on the sale of points to its partners (banks, credit card and airline companies).

However, differently from the tax authorities’ interpretation, the Federal Administrative Tax Tribunal (CARF) has held that the related revenues should be subject to PIS and COFINS taxes only at the end of the transaction, i.e., on the redemption of the accrued points by the client.

Services of Credit and Debit Cards, Leasing and Health Care Must be Paid to the Municipalities Where the Clients Are Domiciled

The Brazilian Congress has overridden the presidential veto on Supplementary Law 157/2015, aiming to enable municipalities to charge the Tax on Services (ISS) on credit and debit cards, leasing and health care in the cities where the final consumers are domiciled.

Previously such services were subject to the general ISS rule, according to which the tax should be paid to the municipality in which the service provider is located. This criterion was also confirmed by the Superior Court of Justice a few years ago. However, as a result of the new provisions, taxpayers will have to be in compliance with the regulations of each municipality in which they have customers.

Given the potential increase in compliance costs derived from the approved taxation model in light of differing regulations in different municipalities, some associations have already stated that they intend to challenge the new measures in court.

Federal Government Approves a New Amnesty Program for Tax Debts (PERT)

Published in an extra edition of the Official Gazette of May 31, 2017, Provisional Measure 783 establishes the Special Tax Regularization Program (PERT) and allows a reduction of fines and penalties related to federal outstanding debts up to April 30, 2017. The reductions apply to individuals and legal entities, including those that were subject to previous programs or that are the subject of administrative or judicial proceedings.

Among its benefits, the PERT allows taxpayers to use tax losses to offset tax debts, pay the debts in 120 monthly installments, apply discounts on penalties and interest etc., depending on the type of liability and the terms of the program.

The deadline for interested taxpayers to apply for the PERT is August 31, 2017.

Federal Administrative Tax Tribunal (CARF) Cancels the Tax Assessment Related to the Goodwill Resulting from the BOVESPA-BM&F Transaction

The lower chamber of the CARF has decided that the goodwill resulting from the merger between the São Paulo Stock Exchange (BOVESPA) and the Futures and Commodities Exchange (BM&F) was valued and amortized correctly.

The assessment was issued because the tax authorities challenged the valuation of the absorbed company’s equity within the merger and, thus, the tax amortization of the goodwill derived from the transaction. Despite this, the CARF held that the valuation was appropriate and canceled the tax assessment.

The decision is not final and might be modified by the CARF’s upper chamber.

Printing Services Should Not be Subject to the Excise Tax

A printing service provider has succeeded in defending the position that the Excise Tax (IPI) should not be levied on its core business, receiving a favorable decision from the Federal Administrative Tax Tribunal (CARF).

Contrarily to the tax authorities’ position that printing services are subject to both the Excise Tax and Municipal Tax on Services (ISS), the Tribunal held that the Excise Tax could not be levied when the transaction is listed as subject to the Municipal Tax on Services.

This decision can be used as a precedent for the position that the Excise Tax should not be levied on other types of transactions on which the federal authorities are currently levying it.

Reopening of the Brazilian Tax and Criminal Amnesty Program

Posted on by Anni Varanda

Federal Law 13,428 was enacted in March 30th 2017 ruling the reopening of the Brazilian Special Regime for Tax and Exchange Legalization (“RERCT”), taking into consideration the success of its first version, which represented an extra revenue for tax authorities in 2016 of over BRL 45 billion.

The main objective of the regime remains the same, i.e., to regularize resources, assets and rights of legal background, not declared or declared improperly, remitted or kept abroad, or even repatriated, by Brazilians residing in the country in June 30th 2016, from both a tax and a criminal perspectives.

Note that the new deadline to file this optional procedure will be July 31st 2017 and the applicable overall cost (income tax + penalty) for joining has increased from 30% to 35.25%, as a way to punish stragglers. Besides, in order to converse the asset value to BRL, the taxpayer will have to use the USD exchange rate from June 30th 2016, of 3.2098, higher than that of the first season (2.6562).

Notwithstanding, we still consider this amnesty program as an unprecedented way to legalize the situation of those Brazilians who hold undeclared assets abroad, specially bearing in mind the current context of intense exchange of information among tax authorities throughout the world.

BRAZILIAN TAX REVIEW – APRIL 2017

Posted on by Anni Varanda

Brazilian Supreme Court Holds that the Inclusion of State VAT (“ICMS”) in the Calculation Basis of Social Contributions on Gross Revenues (“PIS/COFINS”) Is Unconstitutional

After more than a decade of discussions, the Brazilian Supreme Court has held that taxpayers should exclude the ICMS amount from their gross revenues in order to calculate the PIS/COFINS levied on it.

Although the decision was issued in a case that benefits all taxpayers, the Court’s position regarding the precise effects of this decision is still pending and might be issued with the analysis of the motion for clarification the federal government will file.

This is because it is possible that Supreme Court will hold that the exclusion is mandatory solely for taxpayers who have already filed lawsuits regarding this matter in Court, limiting the decision’s enforcement to the post-final decision period for those who are not litigating regarding this matter. In the worst-case scenario, the Supreme Court could decide that the effects of the decision should be enforced from a future date for all taxpayers (including those with pending lawsuits) because the decision will result in a major revenue loss for the Brazilian government.

The Supreme Court Decides that Social Contributions on Payroll are Levied on Employee’s Usual Payments

The Brazilian Supreme Court has held that all usual payments made to employees should be subject to the Social Contribution on Payroll, dismissing taxpayers’ main argument that some amounts should be considered compensation and not remuneration for work.

Some examples of such payments are the Christmas bonus, hazardous duty pay, one-third extra payment for vacation time, etc.

According to the court, all these payments are usual and, for this reason, should be considered in the payroll. As a consequence, the Social Contribution on Payroll should be levied on them.

Brazilian Federal Revenue Consolidates its Positions Regarding the Calculation of Corporate Income Tax, CSLL, PIS and COFINS taxes

Brazilian Federal Revenue (“BFR”) issued Normative Ruling 1,700/17, which consolidates its positions related to the calculation of the corporate income tax, CSSL, PIS and COFINS taxes, especially in view of the relatively recent changes introduced by Law 12,973/2014.

Previously, BFR’s positions regarding the calculation of these taxes were scattered among several other normative rulings. BFR now consolidates its positions in this new rule, bringing more clarity and unity to the regulation of the mentioned taxes.

Additionally, Normative Ruling 1,700/17 is innovative since it expressly provides that certain expenses are non-deductible only from the corporate income tax calculation basis and not from that of the CSLL (for example, expenses with bonuses paid to administrators). Prior to this, BFR had taken the position that the calculation bases of these taxes were identical.

Brazilian Government Extinguished the Additional Rate of COFINS-Import and Social Security Contribution on Gross Revenue (“CPRB”)

The Brazilian Government has enacted the Provisional Measure 774/2017, which has (i) made substantial changes regarding the Social Security Contribution on Gross Revenue (“CPRB”) and (ii) extinguished the 1% additional COFINS-Imports rate.

According to the new rule, construction (infrastructure), collective transportation (roads, rails and subways) and journalism or radio will continue to be allowed to calculate the Social Security Contribution on Gross Revenue (“CPRB”). For these activities, the tax rates are going to be raised to 4.5% for construction, 2% for collective transportation and 1.5% for journalism or radio. Taxpayers engaged in other activities will be required to return to the former tax on payroll as soon as the new rule comes into effect (June 1, 2017).

Finally, the 1% additional rate of Cofins-Imports will no longer be levied from June 1, 2017.

Brazilian Government Authorizes the Full Outsourcing of Company Activities (Including Core Activities)

The recently passed Law 13,429/2017 authorizes unlimited outsourcing of services by companies located in Brazil. Prior to this law, only services known as “middle-activity services,” i.e., those unrelated to a company’s core business, could be outsourced.

Under the new rules, companies will be allowed to hire third parties to perform any of their activities, basically through temporary labor supply agreements or simple service agreements. Nevertheless, no matter the case, the hiring company will remain liable for any labor debts that the outsourced company fails to pay to its employees.

Other obligations related to the maintenance of minimal acceptable working conditions, such as security and hygiene standards, continue to be the hiring company’s responsibility. However, companies are no longer required to provide outsourced workers the same transportation assistance or meal tickets as they give their own employees.

These new rules do not apply to security companies or companies that transport valuables because they are governed by special legislation.

Brazilian Government Reopens the Program to Legalize Undeclared Foreign Assets of Brazilian Taxpayers

In 2016, the Brazilian Government created a program to legalize undeclared foreign assets held by Brazilian taxpayers abroad. This program was called the RERCT. Through the RERCT, a taxpayer could legalize undeclared assets and have their criminal liability for the crimes involved extinguished.

The program has been reopened by Law 13,248/17. Under the new law, taxpayers can legalize assets held until July, 31, 2017, subjecting them to the income tax at a 15% rate and to the payment of a fine of one hundred thirty five percent (135%) of the amount paid as income tax (effective rate of 35.25%). The deadline for joining the program is July 31, 2017.

Brazilian Federal Revenue Issues Understanding Regarding the Taxation of Software as a Service (“SaaS”)

Brazilian Federal Revenue (“BFR”) has issued its position on the taxation of remittances related to transactions involving Software as a Service with non-residents.

According to the tax authorities, the case analyzed had no proper “sale” of the software but merely the right to access and use it remotely in the cloud. The remittances were made by the Brazilian company to the non-resident but the software was accessed directly by the Brazilian company’s clients (the taxpayer sells a sort of “access authorization” that enables its clients to use the software).

Therefore, according to BFR, transactions with such software must be taxed as a technical services (i.e., taxed by WHT at a 15% rate and by CIDE-tax at a 10% rate). Despite BFR’s position on this matter, it bears noting that there are legal arguments against these transactions being subject to these taxes.

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